MCD Stock: This Could Be Huge for McDonald’s Stock

By Jeff Russell, B. Comm., MA Published : March 15, 2016

McDonald’s Corporation (NYSE:MCD) is about to try something that has been very successful for Starbucks Corporation (NASDAQ:SBUX). But before we get to that, you may recall that McDonald’s has been revamping its business over the past year in an effort to revive sluggish sales on customer fears that its food isn’t healthy enough or that the company has lost touch with its customers. But last May, newly appointed MCD stock CEO Steve Easterbook unveiled a turnaround plan to revive McDonald’s stock.

Since than, the company has cut several menu items in an attempt to speed up customer service, introduced a new higher-quality burger (“Sirloin Third Pounder”), and announced that it would be removing antibiotics and other additives from its chicken in the U.S.

But it’s the introduction of its all-day breakfast menu in the U.S. last quarter that might be the first real step in reviving sales at McDonald’s.

Earnings for the quarter were a major victory, as the all-day breakfast menu helped power the company to an increase in global same-store sales of five percent over the previous year. U.S. same-store sales saw even better numbers, growing 5.7% in the same period. (Source: “McDonald’s Reports Fourth Quarter And Full Year 2015 Results,” McDonald’s Corporation, January 25, 2016.) It’s the second quarter in a row that McDonald’s has posted same-store sales increases.

And now McDonald’s has another trick up its sleeve that it’s hoping will do for its company what it did for Starbucks.

McDonald’s is getting into the customer rewards game. The company is building a loyalty program into its new smartphone app that could be in place late this year or early next year. (Source: “McDonald’s building loyalty program,” Nation’s Restarurant News, March 9, 2016.)

The program is still in its early stages, but it will likely reward customers by offering deals based on the number of visits they make to McDonald’s every month. The app will track customer purchases and learn their menu tastes. If the customer hasn’t visited a McDonald’s restaurant in a while, the app may notify them to return with a promotion on one of their favorite items. (Source: Ibid.) And if it’s anything like the Starbucks app, then customers should also be able to pay for their Big Mac” using their phones.

That has the potential to be a significant sales driver for McDonald’s and it adds another dimension to how the company interacts with its customers.

The McDonald’s app was released last year and has been downloaded 7.5 million times, which, according to McDonald’s USA president Mike Andres, has exceeded expectations. (Source: Ibid.) The app currently has a beverage offer that gives customers a free McCafe beverage after they have purchased five.

By launching the new loyalty program, McDonald’s is trying to mimic Starbucks, which has one of the most successful loyalty apps in the restaurant business.

Starbucks was well ahead of its competitors when it introduced its Starbucks app a few years ago. The app came integrated with a mobile payment system and Starbucks customer loyalty rewards card.

The app caught on with customers like wildfire and it has now become a major focus for the company. Customers that used Starbucks’ mobile app to pay for their coffee accounted for 21% of all U.S. transactions in the first quarter of 2016, with that number rising to 22% in December (Starbucks’ Q1 is October to December). (Source: “Mobile means more bucks for Starbucks,” Mobile Strategies 360, January 26, 2016; https://www.mobilestrategies360.com/2016/01/26/mobile-means-more-bucks-starbucks.) The company added that they are seeing further acceleration in January.

That is an astounding feat, considering that many companies struggle with building customer loyalty.

If McDonald’s gets its loyalty and mobile app right, it has the potential to be a customer loyalty driver. With so much competition in the restaurant industry, its imperative that McDonald’s locks down as many customers as it can.

The Bottom Line on McDonald’s Stock

MCD stock has rewarded investors nicely over the past six months. McDonald’s stock is up about 25%, largely driven by the success of its all-day breakfast menu. If McDonald’s can replicate the success with its new mobile app the way Starbucks has, investors will see more uptick in McDonald’s stock in the years to come.